Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, comments on the results of Hargreaves Lansdown’s market report:
“Retail sales fell 0.9% in March, compared with expectations of a 0.5% drop. Within this disappointing decline is difficult news for department and clothing shops which saw steeper drops. Retailers have been quick to point out that this was driven by poor weather conditions which discouraged spending in physical locations, but the broader issue runs much deeper than that.
“Households were turning away from these shops before the economy weakened, and it’s now even more difficult to encourage them to part with their dwindling cash. There were stronger numbers from food stores, but still declines overall. Customers are clearly rationalising their weekly shop and paring back on the non-essentials, which is often where supermarkets make more of a margin, so from a sector perspective, this is something to watch.
“Despite the tough showing from retailers, consumer confidence has rebounded to levels not seen since before the invasion of Ukraine. According to the important index by GfK, confidence is up by 6 points to -30. What’s very telling is that the biggest leap came from people’s outlook on their personal finance, suggesting the expectations for more stable inflationary and interest rate environments has trickled down to consumers.
“In theory, this could help boost spending in the consumer discretionary area of the economy, but it’s important to remember that while improved, confidence is still fragile and plumped-up spending in the economy is still unlikely.
“The FTSE100 is expected to end the week on a subdued note, with minimal losses possible. The lack of lift-off in any meaningful way is likely to reflect ongoing concerns around economic and business activity following the miss on retail sales. At the same time, the US also saw its main indices slip in yesterday’s trading session, with futures now flat.
“The market is trying to digest a tough set of results from Tesla in particular, where margins are being sacrificed in the name of encouraging people to spend. This has wide ramifications for other growth companies in the region and could be a source of sensitivity for some time.
“The market will also be struggling to find a place to land in expectation of big-tech earnings next week, which should signal the health of the consumer industry, and either prop up or challenge some valuations, given the significant rallies seen since the start of the year. An important report by the Federal Reserve has shown that the US economy has stalled in recent weeks which could act as a drag on equities.
“This report has also fed into a sharp weekly decline in the oil price, with Brent crude trading at around $80 a barrel. This means the majority of the rally driven by the surprise cut in production by OPEC has all but been erased. Demand from China remains elevated, and the trajectory of this is likely to be the biggest source of oil price fluctuations in the short-term.”
